Integrated Business Policy & Strategy: Chapter 1, 2, 3, & 4

Stakeholder Impact Analysis

helps to recognize, prioritize and address stakeholder needs.

Competitive Parity:

two or more firms that perform at the same level.

Resource Allocation Process (RAP):

• How a firm allocates resources based on predetermined policies. - Helps shape realized strategy.

Upper Echelons Theory

• Organizational outcomes reflect values of top management team. • Their unique perspectives and values.

Stakeholder Legitimate Claims

• Perceived to be legally valid or otherwise appropriate.

Stakeholder Power

• when the stakeholder can get the company to do something that it would not otherwise do.

Scenario planning:

•A formal, top-down approach. - Asks " what if " questions: •Top management envisions different scenarios. •Then they derive strategic responses. - Optimistic and pessimistic futures are planned. Considerations can include: •New laws. •Demographic shifts. •Changing economic conditions. - Technological advances.

Leadership actions reflect

•Age, education, and career experiences. •Personal interpretations of situations.

Customer-oriented vision statements:

•Allow companies to adapt to changing environments. •Focus on problem solving for the customer. -Define a business in terms providing solutions to customer needs. •Customer needs may change. - The means of meeting those needs may change also.

Dialectic Inquiry:

•Alternatives are explored. •Compromises are discussed.

AFI Framework

•Analysis (A). •Formulation (F). •Implementation (I).

Emergent strategy:

•Any unplanned strategic initiative. •Bubbles up from the bottom of the organization. •Can influence and shape a firm's overall strategy.

Strategy as planned emergence:

•Begins with a strategic plan, but it is less formal. - Top-Down & Bottom-Up: •Bottom-up strategic initiatives emerge. •Evaluated and coordinated by management. •Less formal and less stylized. Relies on data, plus: •Personal experience. •Deep domain expertise. •Front line employee insights.

System 1

•Brain's default mode. •Gut reaction. •Familiar, efficient, automatic. •Requires little energy.

Realized strategy:

•Combination of intended and emergent strategy.

To assess competitive advantage, benchmark...

•Compare the firm to competitors in the same industry. •Compare the firm to the industry average.

Organizational core values:

•Ethical standards and norms. •Govern the behavior of individuals. •Provide stability to the strategy. •Serve as guardrails to keep the company on track.

Product-oriented vision statements:

•Focus on improving existing products and services. - Define a business in terms of a good or service provided. •Force managers to take a more myopic view. - Can hinder understanding of the competitive landscape.

Corporate Strategy

•Headquarters Where to compete? •Industry, markets, and geography.

Functional Strategy

•How to implement a chosen business strategy? •Different strategies require different activities.

An effective vision:

•Is expressed as a statement. •Should be forward-looking and inspiring. •Should provide meaning for employees in pursuit of the organization's ultimate goals.

System 2

•Logical, analytical, deliberate. •Requires more energy. •Slower.

Strategy Implementation

•Organization, coordination, integration. •How work gets done. The execution of strategy.

Serendipity:

•Random events, surprises, coincidences. •Has an effect on strategic initiatives.

Business Strategy

•SBUs How to compete? •Cost leadership, differentiation, or value innovation.

Autonomous Actions:

•Strategic initiatives undertaken by employees. •A response to unexpected situations.

Strategy Formulation

•The choice of strategy. •Where and how to compete.

Devil's Advocacy:

•The path forward is challenged with alternative viewpoints. •Highlights what can go wrong. Criticisms are offered.

Values help employees:

•Understand the company culture. •Deal with complexity. •Resolve conflict.

Values

•What commitments do we make? •What safeguards do we put in place? •How do we act both legally and ethically as we pursue our vision and mission?

To craft a good strategy requires three critical steps:

(1)diagnosing the competitive challenges facing the organization; (2)providing a guiding policy on how to deal with the competitive challenges identified; and (3)effective implementation through a coherent set of actions.

Strategic planning:

- A formal, top-down approach. - Data-driven strategy process. - Top management attempts to program future success through analysis of: •Prices and costs. •Margins. •Market demand. •Head count. •Production runs. •Five-year plans and budgets. •Performance monitoring.

Mission

- How do we accomplish our goals? - What an organization actually does. •The products and services it will provide. •The markets in which it will compete. - Defines how the vision is accomplished.

Black Swan Event

- The high impact of a highly improbable event. - It can affect strategic planning - People once assumed all swans were white. •When they first encountered swans that were black, they were surprised.

The Pyramid of Corporate Social Responsibility

1. Economic Responsibilities 2. Legal Responsibilities 3. Ethical Responsibilities 4. Philanthropic Responsibilities

Stakeholder Impact Analysis Steps

1. Who are our stakeholders? 2. What are our stakeholders' interests and claims? 3. What opportunities and threats do our stakeholders present? 4. What economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders? 5. What should we do to effectively address the stakeholder concerns?

What Strategy Is NOT

1.Grandiose statements: •"We will be number 1," "We will win." 2.A failure to face a competitive challenge: •Blockbuster didn't address Netflix, Redbox, Amazon Prime, and Hulu. 3.Operational effectiveness, competitive benchmarking, or tactical tools: •Examples: "pricing strategy," "operations strategy," "brand strategy." •These are good policies or initiatives, but not a strategy.

Shortcomings of the Top-Down Approach

1.May not adapt well to change. 2.Formulation is separate from implementation. 3.Information flows one-way. 4.Leaders' future vision can be wrong.

Questions to Ask in Scenario Planning

1.What resources and capabilities do we need to compete successfully in each future scenario? 2.What strategic initiatives should we put in place to respond to each respective scenario? 3.How can we shape our expected future environment?

Which of the following statements is true of the social responsibilities of a business? A) A firm's ethical responsibilities go beyond its legal responsibilities. B) Shareholders mandatorily require a firm to perform its ethical and philanthropic responsibilities. C) Ethical responsibilities are the foundational building block of a firm's social responsibility. D) Legal responsibilities are often subsumed under the idea of corporate citizenship, reflecting the notion of voluntarily giving back to society.

A A firm's ethical responsibilities go beyond its legal responsibilities. They embody the full scope of expectations, norms, and values of its stakeholders. Managers are called upon to do what society deems just and fair.

The minimum wage in the country of Hanns is $8 an hour. Delish, a restaurant in Hanns' capital city, pays its servers $8 per hour. However, the management of the restaurant feels that this amount is excessive for workers whose only job is to clear tables. By continuing to adhere to the rules set by the government of Hanns, which of the following responsibilities is Delish satisfying? A) legal responsibilities B) philanthropic responsibilities C) ethical responsibilities D) demographic responsibilities

A By adhering to the rules set by the government of Hanns, Delish is satisfying its legal responsibilities. Laws and regulations are a society's codified ethics, embodying notions of right and wrong. They also establish the rules of the game.

Jennifer was just named the CEO of a pen company called National Pens Inc. She immediately changed the name to "Jenn's Pens." When asked why she made this change by the board of directors, who showed research that there was no correlation between success and CEP names, she responded by saying, "my previous company had the name of their CEO in the title, and they were very successful." This fallacy on Jenifer's part reveals her A) confirmation bias. B) optimal decision making. C) escalation of commitment. D) groupthink.

A Confirmation bias is the tendency of individuals to search for information that confirms their existing beliefs. When confronted with evidence that contradicts these beliefs, they either ignore the evidence or interpret it such that it supports their beliefs.

________ are considered the ethical standards and norms that govern the behavior of individuals within a firm. A) Organizational core values B) Mission statements C) Vision statements D) Strategic leadership

A Organizational core values are the ethical standards and norms that govern the behavior of individuals within a firm or organization.

Which of the following tasks in the AFI strategy framework involves evaluating the internal and external environments in which a firm operates? A) analysis B) formulation C) implementation D) competitive advantage

A Strategic analysis, the "A" in the AFI strategy framework, includes analyzing the internal and external environments of a firm.

Suger & Sweet Sodas has seen its market share erode in recent years, as consumers increasingly turn toward healthier beverage choices such as unsweetened sparkling water. Hoping to rekindle interest in sugary sodas, Suger & Sweet decides to produce a limited run of "throwback" cans using labeling first introduced in the 1980s. What is wrong with this strategy? A) It fails to face the competitive challenge. B) It does not involve concrete actions. C) It lacks strategic commitments. D) It tries to be everything to everybody.

A Suger & Sweet's strategy fails to face the competitive challenge of changing consumer tastes. Instead of trying to give customers what they want by producing its own line of sparkling waters, Suger & Sweet simply continues to produce the same sugary sodas and is likely to see its market share continue to decline.

The distribution department at Wheat, Barley and Whey Corp. has decided to adopt the FIFO (first in, first out) method of inventory to dispatch its bags of wheat. Which of the following strategies does this scenario best illustrate? A) functional strategy B) corporate strategy C) master strategy D) business strategy

A The distribution department of Wheat, Barley and Whey Corp. has decided to implement a functional strategy. Within each strategic business unit are various business functions: accounting, finance, human resources, product development, operations, manufacturing, marketing, and customer service. Each functional manager is responsible for decisions and actions within a single functional area.

The CEO of All Star Corp. has decided to enter the markets of emerging nations like China and Brazil. This means that the books, magazines, and websites published under the Chyron Media banner would be made available in these nations. Which of the following strategies does this scenario best illustrate? A) corporate strategy B) functional strategy C) business strategy D) divisional strategy

A The given scenario of All Star Corp. describes a corporate strategy. Corporate strategy concerns questions relating to where to compete (industry, markets, and geography). Corporate executives at headquarters formulate corporate strategy.

Bill Lewis wants to become a business strategy consultant and doesn't understand how emerging consultants get started. Bill should familiarize himself with the ________ framework that outlines the important process when examining the concept of strategic management. A) AFI: Analyze-Formulate-Implement B) AFE: Analyze-Formulate-Execute C) API: Analyze-Plan-Implement D) APE: Analyze-Plan-Execute

A There are three steps in the strategic management process: analysis, formulation, and implementation.

Which of the following is an assumption that top-down strategic planning rests on? A) We can predict the future from the past. B) Time cannot be compressed at will. C) Decisions made in the past do not affect our future. D) Change is constant.

A Top-down strategic planning rests on the assumption that the future can be predicted from the past. The approach works reasonably well when the environment does not change much.

Sustainable Competitive Advantage

A firm that is able to outperform its competitors or the industry average over a prolonged period.

Strategic Positioning

A unique position within an industry that allows the firm to provide value to customers, while controlling costs.

Stakeholders

Organizations, groups, and individuals: •Can affect or can be affected by a firm's actions. •Have a vested claim or interest in the performance or survival of the firm.

Illusion of Control

Our tendency to overestimate our ability to control events.

Intended strategy:

Outcome of a rational and structured top-down strategic plan.

Alan has been an employee with StartsInc. for 15 years. He started with an entry-level job, and today he is a manager of an entire division. Over the years, Alan has acquired a reputation for doing the right things in the company. Hence, as an efficient leader, he is capable of effectively communicating and motivating his subordinates to work toward the company's vision and mission. According to the Level-5 leadership pyramid, which is the highest level of leadership Alan has reached so far? A) Level 5 B) Level 4 C) Level 3 D) Level 2

B Alan has reached Level 4 of the Level-5 leadership pyramid so far. At Level 4, the effective Level 3 manager becomes a leader who determines what the right decisions are. The Level 4 manager effectively communicates a compelling vision and mission to guide the firm toward superior performance. He or she "does the right things."

alliance partners

Alliance partners engage in a more strategic, long-term relationship. These partnerships involve joint planning, shared goals, and mutual resource investments. In addition, both parties work together to achieve a competitive advantage through collaboration and innovation.

Stakeholder Strategy

An integrative approach to managing a diverse set of stakeholders to gain and sustain competitive advantage.

Good Ole Cinemas Inc. and HD Inc. are two companies that own and run movie theaters in malls and other commercial areas. While Good Ole Cinemas Inc. pursues a cost-leadership strategy, HD Inc. adopts a differentiation strategy. Which of the following statements is most likely true of this scenario? A) Good Ole Cinemas will charge a premium price for its customers, while HD will implement everyday low pricing. B) HD and Good Ole Cinemas will not be direct competitors to each other, and their customer segments will overlap very little. C) HD will keep its customer service at an acceptable level, while Good Ole Cinemas will provide superior customer service. D) Good Ole Cinemas and HD will use a similar approach to create value for customers by attempting to offer everything to everybody.

B Although these companies are in the same industry, their customer segments will most likely overlap very little, and they will not be direct competitors. That is because each firm has chosen a distinct but different strategic position; both can win if they have a distinct and well-executed competitive strategy.

The Level-5 Pyramid Level 5: Executive

Builds enduring greatness through a combination of willpower and humility.

Which of the following is a customer-oriented vision? A) to be the most progressive insurance company B) to be the best automobile company in the world C) to enable businesses to improve their employee communications D) to manufacture innovative products through continuous learning

C A customer-oriented vision defines a business in terms of providing solutions to customer needs. The statement "to enable businesses to improve their employee communications" is a customer-oriented vision.

Which of the following best qualifies as a firm's internal stakeholder? A) an auditor assigned to the firm by a federal government agency B) a labor union with whom the firm's employees can affiliate C) a manager taking care of the firm's operations in a foreign market D) a competitor manufacturing the same products as that of the firm

C A manager taking care of the firm's operations in a foreign market best qualifies as the firm's internal stakeholder. A firm's internal stakeholders include stockholders, employees (including executives, managers, and workers), and board members.

HomeAgain is a nonprofit organization that works toward rehabilitating the homeless. The credo of the organization is "help us help you." For an organization like HomeAgain, which of the following statements would make an appropriate mission? A) Help us help you find a home. B) One day, everyone in this nation will have a home to protect themselves. C) We help the homeless gain and sustain financial independence by providing employment opportunities. D) Our mission is to turn this not-for-profit organization into a for-profit organization so that the stakeholders benefit.

C Building on the vision, organizations establish a mission, which describes what an organization actually does—that is, the products and services it plans to provide, and the markets in which it will compete. "We help the homeless gain and sustain financial independence by providing employment opportunities" would make an appropriate mission for True Help.

Industrial Drills, a company that manufactures industrial tools, incurs higher costs because of its refusal to outsource its manufacturing to countries where labor costs are lower. This reflects Industrial Drills' ________ responsibility. A) economic B) legal C) ethical D) demographic

C This reflects Industrial Drills' ethical responsibility. A firm's ethical responsibilities go beyond its legal responsibilities. They embody the full scope of expectations, norms, and values of its stakeholders. Managers are called upon to do what society deems just and fair.

Bill's Auto & Airplane Repair shop is able to generate a positive net income of $10,000 a week; this is the industry average. We can conclude that since he has a positive net income, he also has a competitive parity in the industry A) Correct—competitive advantage is achieved through profitability alone. B) Correct—competitive advantage is achieved since Bill's Auto & Airplane Repair shop has a positive net income. C) Correct—competitive parity is achieved by generating average returns, relative to competition in a given industry. D) Incorrect—Bill's Auto & Airplane Repair shop more than likely has a sustained competitive advantage since his business is diversified.

C) Correct—competitive parity is achieved by generating average returns, relative to competition in a given industry.

Pestel Framework

Political Economic Sociocultural Technological Ecological Legal

External Stakeholders Examples

Consumers Suppliers Alliance Partners Creditors Unions Communities Governments Media

Escalating Commitment

Continuing to support a project when it is showing signs that it may not succeed.

Strategic Commitments

Credible actions that back up the vision and mission statements. These commitments are often: •Costly. •Long-term oriented. Difficult to reverse.

External stakeholders

Customers, suppliers, alliance partners, creditors, unions, communities, media, and governments.

Corporate executives at Fly High Inc. decide to compete in the remote model airplane industry by making the largest model planes available. By doing this, they completed part of their ________ strategy. A) implementation B) corporate C) functional D) business

D Business strategy deals with differentiation, such as making a product that is in some way different from the product of competitors. Fly High, Inc. is doing this by making the largest model planes available.

The management of Venture Manufacturing showed a commitment to ________ by increasing the salary of many female employees to meet its goal of having equal pay for women and men who perform comparable work. A) scenario planning B) upper-echelons theory C) product-oriented vision D) organizational core values

D Equal pay for women and men employees for comparable work is an organizational value. The management of Venture Manufacturing showed a commitment to this value by increasing the salary of many female employees.

Who among the following is responsible for making business strategies in a large conglomerate? A) the board of directors at the headquarters B) the shareholder of the company C) the lower-level employees in the company D) the general managers of individual business units

D General managers in strategic business units (SBUs) must answer business strategy questions relating to how to compete in order to achieve superior performance.

The first step in stakeholder impact analysis involves A) formulating a stakeholder strategy to balance the different needs of various stakeholders. B) identifying the opportunities and threats the stakeholders present. C) describing the economic, legal, ethical, and philanthropic responsibilities of the firm toward society. D) identifying the stakeholders that currently have, or potentially can have, a material effect on a company.

D In the first step of stakeholder impact analysis, the firm focuses on stakeholders that currently have, or potentially can have, a material effect on a company. This prioritization identifies the most powerful stakeholders (both internal and external) and their needs.

Due to several black swan events in the past, the A) shareholders of public companies have become more confident in investing their resources in businesses. B) need for corporate governance and transparency has decreased within various industries. C) nations around the globe have explicitly appreciated and accepted capitalism as an economic system. D) implicit trust relationship between the corporate world and society at large has deteriorated.

D The implicit trust relationship between the corporate world and society at large has deteriorated due to the arrival of several black swans.

If a company wants to gain a competitive advantage in a highly competitive industry, it should ideally A) execute an integrated cost-leadership and differentiation position. B) copy the strategies of other firms through competitive benchmarking. C) provide goods or services similar to its competitors at higher prices. D) stake out a unique position within the industry.

D The key to successful strategy is to combine a set of activities to stake out a unique position within an industry. Competitive advantage has to come from performing different activities or performing the same activities differently than rivals are doing. Competing to be similar but just a bit better than a competitor is likely to be a recipe for cutthroat competition and low profit potential.

All of the following are external stakeholders except which of the following A) customers B) creditors C) alliance partners D) competitors

D) competitors are not stakeholders

The Level-5 Pyramid Level 4: Effective Leader

Presents compelling vision and mission to guide groups toward superior performance. Does the right thing.

Representativeness

Drawing conclusions based on small samples or anecdotes.

Internal Stakeholders Examples

Employees Stockholders Board Members

The Level-5 Pyramid Level 3: Competent Manager

Is efficient and effective in organizing resources to accomplish stated goals and objectives. Does things right.

Strategic Leaders: The Level-5 Pyramid

Level 1: Highly Capable Individual Level 2: Contributing Team Member Level 3: Competent Manager Level 4: Effective Leader Level 5: Executive

The Level-5 Pyramid Level 1: Highly Capable Individual

Makes productive contributions through motivation talent knowledge and skills

Approaches to Scenario Planning

Obtain input from different levels and functions: •R&D, manufacturing, and marketing and sales. Determine how to compete situationally. Attach probabilities into different future states: •Highly likely vs. unlikely.

Confirmation Bias

Searching for information to support existing beliefs.

Stakeholder Impact Analysis Steps

Step 1: Identify Stakeholders Step 2: Identify Stakeholder's Interests Step 3: Identify Opportunities and Threats Step 4: Identify Social Responsibilities Step 5: Address Stakeholders Concerns

Internal stakeholders

Stockholders, employees (including executives, managers, and workers), and board members.

Reason by Analogy

The tendency to use simple analogies to make sense out of complex problems.

The Level-5 Pyramid Level 2: Contributing Team Member

Use high level of individual capability to work effectively with others in order to achieve team objectives

Vision

What do we want to accomplish ultimately?

Groupthink

When opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions.

Competitive Disadvantage

a firm that underperforms: •Its rivals. •The industry average.

competitive advantage is

an advantage over competitors gained by offering greater customer value, either by having lower prices or providing more benefits that justify higher prices (differentiation)

Value creation - costs =

economic contribution

Value Creation

occurs because companies with a good strategy are able to provide products or services to consumers: •At a price point that they can afford. •That enables the company to make a profit.

competitive parity is

performance of two or more firms at the same level

Three important stakeholder attributes:

power, legitimacy, and urgency

AFI Strategy Framework

provides a basis for understanding the interdependent relationships necessary to manage the strategy process.

Competitive advantage is...

relative

Stakeholder Urgent claims

require a company's immediate attention and response.

Two Decision Making Modes

system 1 and system 2